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SPEECHES & TESTIMONY

  • Remarks of Chairman J. Christopher Giancarlo to the ABA Derivatives and Futures Section Conference, Naples, Florida

    January 19, 2018

    Introduction

    Thank you. Good afternoon.

    I’d like to recognize my fellow Commissioners Behnam and Quintenz, and the CFTC staff who are at this conference. They are formidable, knowledgeable public servants. I am proud to work with them. Their ideas enhance and enlarge any discussion. Dan Davis, Matt Kulkin, Jamie McDonald, Eric Pan, Vince McGonagle … all of you ... thanks for your presence and participation.

    And, I would like to thank the conference organizers for inviting me and putting on such a great program. It is also good to see so many fine colleagues, like Rita Molesworth, Ken Raisler, and so many others. Ken reminded me that your annual search for the sun was very timely this year, given the temperatures elsewhere.

    Members of the ABA Derivatives Section know each other well. It’s a relatively small section, though larger than it used to be. Every year you meet together and assess the current state of derivatives. The potential of your meetings is evident, the results enormous. There is much power and influence here. In many ways, this meeting is the equivalent of the Fed’s annual “Jackson Hole” meeting for derivatives lawyers.

    I want to tap into that power and influence today.

    As you know, before Dodd-Frank, the size and scope of this section was determined by the Commodity Exchange Act (CEA) regulatory jurisdiction being limited to exchange-traded derivatives.  Your meetings before 2008 reflected this limitation.

    However, with the passage of Title VII of Dodd-Frank and expanded Federal regulation of all derivatives – and with no initiative of any kind to repeal Title VII – the scope of issues to be considered, debated and sensibly addressed by this ABA section became more expansive, substantial and lasting.

    Now, we need to move forward again, expanding our scope once again. This section must rise to the opportunity, attract the best and the brightest of the next generation of lawyers, and make further contributions to the jurisprudence of derivatives law and practice.

    In fact, we meet at a time when the world is changing ever more rapidly, transforming, as the Internet and other exponential digital technologies are having an increasing impact on everything in the early Twenty-First Century from information transfer to retail shopping to personal communications.

    It is no surprise that those technologies are having an equally transformative impact on US derivatives markets. They have altered trading, markets and the entire financial landscape with far ranging implications for capital formation and risk transfer. They include algo-based trading and automated data transfer, “big data” information analysis and interpretation, artificial intelligence driving dynamic trade execution, “smart” contracts valuing themselves and calculating payments in real-time, and distributed ledger technology, more commonly known as blockchain, that is challenging traditional market infrastructure.

    In recent years, a number of these technologies have turned from several tributaries into one river, which recently became a surging torrent, a gulf stream. You can see it…read about it: virtual currencies.

    Challenges and Opportunities of Virtual Currencies

    In the waning months of 2017, virtual currencies, especially Bitcoin, took the world by storm. The Wall Street Journal estimates that Bitcoin’s value increased 1,375% in 2017.1 Stories about it and other virtual currencies moved rapidly from online chatter to the back pages of the financial press to the front pages of the national press to quarterly analysts’ calls of bank CEOs and to White House press briefings.

    They are sweeping us rapidly, day-by day, hourly, into a new future. And that torrent is bumping up against some of the established frameworks of futures regulation, including the obligation of futures exchanges to ensure that virtual currency futures are not susceptible to manipulation, and of futures clearinghouses to ensure that such products are adequately risk managed.

    That is why I wanted to speak with you. Virtual currencies demand the focused attention of this group. We cannot ignore them. This is not the time or place for denial or misunderstanding or personal preference. This is the time for recognition, reflection, and wisdom…a time to set the course for the future….navigating through new waters. Not tomorrow. Today.

    In the past, this ABA section has produced some important and timely responses to changes in the derivatives market. And, we need you now. We need this section now.

    Much interest in virtual currencies is driven by an emerging generation whose lives are increasingly lived in a global, interconnected, on-line world. It is a generation in which many would sooner invest in digital assets through their mobile phones than in corporate bonds through a stockbroker.

    Among other things, the attraction of digital currency lies in the potential of an algorithmic, decentralized store of value, unit of account and medium of exchange that disintermediates the traditional banking system and its associated transaction fees and charges.2 Further attraction lies in the enormous promise of distributed ledger technology that underpins many virtual currencies, including Bitcoin, a promise that has the attention of leaders of both governments and industry.

    Supporters of virtual currency point to Bitcoin’s innovative technological solution to the age-old “double spend” problem – which has always driven the need for a trusted, central authority to ensure that an entity is capable of, and does, engage in a valid transaction. Bitcoin replaces the central authority with a software rules-based, open consensus mechanism.3 Indeed, an array of thoughtful business, technology, academic, and policy leaders have extrapolated some of the possible impacts that derive from such an innovation, including how market participants conduct transactions, transfer ownership, and power peer-to-peer economic systems.4

    Yet, many of the virtues claimed for Bitcoin itself seem at present to be quite scant: it is fairly unstable as a store of value, highly volatile as a unit of account and relatively expensive as a medium of exchange. Critics argue that the current interest in Bitcoin is overblown and resembles a fever, even a mania. They have declared Bitcoin’s heightened valuation to be a bubble similar to the famous “Tulip Bubble” of the seventeenth century.5 They say that virtual currencies perform no socially useful function and, worse, can be used to support illicit activity.6 Some assert that Bitcoin should be banned, as a few nations have done.7

    There is clearly no shortage of opinions on virtual currencies such as Bitcoin. In fact, virtual currencies may be all things to all people: for some, potential riches, the next big thing, a technological revolution, and an exorable value proposition; for others, a fraud, a new form of temptation and allure, and a way to separate the unsuspecting from their money.

    Whatever one’s opinion, an objective perspective helps. As of the morning of January 16, the total value of all outstanding Bitcoin was about $200 billion based on a Bitcoin price of $12,000.8 The total value of all outstanding virtual currencies was about $577 billion. The Bitcoin “market capitalization” is comparable to the stock market capitalization of a single “large cap” business, such as Intel or Citigroup (both around $200 billion). Because virtual currencies like Bitcoin are sometimes considered to be comparable to gold as an investment vehicle,9 it is important to recognize that the total value of all the gold in the world is estimated by the World Gold Council to be about $8 trillion which continues to dwarf the virtual currency market size. Clearly, the column inches of press attention to virtual currency far surpasses its importance in today’s global economy.

    Yet, despite being a relatively small asset class, virtual currency presents both significant opportunities and challenges for regulators. The CFTC has alerted the public to the considerable risks of virtual currencies, such as Bitcoin. These include:

      operational risks of unregulated and unsupervised trading platforms;

      cybersecurity risks of hackable trading platforms and virtual currency wallets;

      speculative risks of extremely volatile price moves; and

      fraud and manipulation risks through traditional market abuses of pump and dump schemes, insider trading, false disclosure, Ponzi schemes and other forms of investor fraud and market manipulation.

    Indeed, as a believer in America’s free market economy and commercial and economic liberty, I am disinclined to set regulatory policy from personal value judgments as to the social utility of a lawful, emerging technology, however considerable the inherent risks. In fact, I agree with former CFTC Commissioner and Acting Chair, Sheila Bair, who wrote recently specifically about Bitcoin that, “value – like beauty – is in the eye of the beholder.” 10

    One thing is certain: ignoring virtual currency trading will not make it go away. Nor is it a responsible regulatory strategy. I also agree with Ms. Bair that, “instead of making value judgments about Bitcoin, what government should do is…take steps to help ensure that the bitcoin price – wherever the market assigns it – is reflective of investors making informed decisions, free of fraud and manipulation...”.11

    Federal Oversight of Virtual Currencies

    As you well know, United States law does not provide for direct, comprehensive Federal oversight of underlying Bitcoin or virtual currency spot markets. As a result, US regulation of virtual currencies has evolved into a multifaceted, multi-regulatory approach that includes:

    • State banking regulators;
    • The Internal Revenue Service (IRS);
    • The Treasury’s Financial Crimes Enforcement Network (FinCEN); and
    • The Securities and Exchange Commission (SEC).

    The CFTC also has an important role to play. And, we have not been idle. As early as 2014, my predecessor, Chairman Timothy Massad, discussed virtual currencies and potential CFTC oversight under the CEA.12 Since then, the CFTC has:

      • declared virtual currencies to be a commodity (2015)13

      • enforced the laws prohibiting wash trading and prearranged trades of a virtual currency swap on a swap execution facility (2015);14

      • taken action against unregistered Bitcoin futures exchanges (2016);15

      • issued proposed guidance on what is a derivative market and what is a spot market in the virtual currency context (2017);16

      • issued warnings about valuations and volatility in spot virtual currency markets (2017);17 and

      • taken enforcement action against a virtual currency Ponzi scheme (2017).18

    Why has the CFTC acted? The CFTC believes that the responsible regulatory response to virtual currencies involves the following:

      1) First, educating consumers. Over the past six months, the CFTC has produced an unprecedented amount of consumer information concerning virtual currencies, including the CFTC’s Virtual Currency Primer,19 its Bitcoin consumer advisory,20 its market advisory,21 its dedicated bitcoin webpage,22 its proposed guidance on what is a spot market in the virtual currency context,23 and its weekly publication of Bitcoin futures “Commitment of Traders” data.24

      2) Second, coordinating with other Federal regulators, especially the SEC, the Fed and the Treasury through its recently formed virtual currency working group, but also, where appropriate, the FBI and the Justice Department.

      3) Third, asserting CFTC legal authority over virtual currency derivatives in support of anti-fraud and manipulation enforcement, including in underlying spot markets.

      4) Fourth, increasing regulatory visibility into markets for virtual currency derivatives and underlying settlement reference rates through the gathering of trade and counterparty data.

      5) Fifth, prosecuting perpetrators of fraud, abuse, manipulation or false solicitation in markets for virtual currency derivatives and underlying spot trading.

    In the past several days the CFTC has filed a series of civil enforcement actions against perpetrators of fraud and market abuse involving virtual currency. These actions and others to follow confirm that the CFTC, working closely with the SEC and other fellow financial enforcement agencies, will aggressively prosecute those who engage in fraud and manipulation of US markets for virtual currency.

    Virtual Currency Products: A Review and Compliance Checklist

    The CFTC’s five objectives respond to the surging tide of global interest in virtual currency. Yet, that surging tide has also brought with it the world’s first Bitcoin futures products.

    Much has been written in the press about the CFTC’s approach to the launch of Bitcoin futures, so a little perspective is also in order. The Bitcoin futures markets are relatively small with open interest at the CME of 6,290 bitcoin25 and at Cboe Futures Exchange (CFE) of 4,901 bitcoin (as of Jan. 12, 2018). At a price of approximately $12,000 per Bitcoin,26 this represents a notional amount of about $135 million. In comparison, the notional amount of the open interest in CME’s WTI crude oil futures was more than one thousand times greater, about $170 billion (2,640,000 contracts) as of Jan. 12, 2018 and the notional amount represented by the open interest of Comex gold futures was about $75 billion (575,000 contracts).

    Recently, CFTC staff undertook its review of CME and CFE’s Bitcoin futures products with great care and thoughtfulness. The uniqueness of these products impelled staff to carefully consider CME’s and CFE’s responsibility under the CEA and Commission regulations to ensure that their Bitcoin futures products and their cash-settlement process are not readily susceptible to manipulation,27 and the risk management of the associated Derivatives Clearing Organizations (DCOs) to ensure that the products are sufficiently margined.28

    In this regard, the staff obtained the voluntary cooperation of CME and CFE with a set of steps that is unprecedented in scope. It includes seven elements:

      1. Designated contract markets (DCMs) setting exchange large trader reporting thresholds at five Bitcoins or less;

      2. DCMs entering direct or indirect information sharing agreements with spot market platforms to allow access to trade and trader data;

      3. DCMs agreeing to engage in monitoring of price settlement data from cash markets and identifying anomalies and disproportionate moves;

      4. DCMs agreeing to conduct inquiries, including at the trade settlement and trader level when anomalies or disproportionate moves are identified;

      5. DCMs agreeing to regular communication with CFTC surveillance staff on trade activities, including providing trade settlement and trader data upon request;

      6. DCMs agreeing to coordinate product launches to enable the CFTC’s market surveillance branch to monitor minute-by-minute developments; and

      7. DCOs setting substantially high initial29 and maintenance margin for cash-settled instruments.

    The first six of these elements were employed to determine that the new product offering complies with the DCM’s obligations under the CEA core principles and CFTC regulations and related guidance, including ensuring that a product is not readily susceptible to manipulation and monitoring the cash-settlement process under the staff’s “heightened review” process for virtual currencies. The seventh element, setting high initial and maintenance margins, was designed to ensure adequate collateral coverage in reaction to the underlying volatility of Bitcoin.

    In crafting its process of “heightened review” for compliance with core principles, CFTC staff prioritized visibility and monitoring of markets for Bitcoin derivatives and underlying settlement reference rates. Staff felt that in gaining such visibility, the CFTC could best look out for Bitcoin market participants and consumers as well as the public interest in Federal surveillance and enforcement. This visibility greatly enhances the agency’s ability to prosecute fraud and manipulation in both the new Bitcoin futures markets and in its underlying cash markets.

    As for the interests of clearing members, the CFTC recognized that major global banks and brokerages that are DCO clearing members are able to look after their own commercial interests by choosing not to trade Bitcoin futures (as some have done), requiring substantially higher initial margins from their customers (as many have done), and through their active participation in DCO risk committees.30

    The CFTC has received some criticism from large market participants for not holding public hearings prior to self-certification of Bitcoin futures.31 Yet, unlike the rule self-certification process, there is no provision in statute for public input into CFTC staff review of new product self-certifications. Neither statute nor rule would have prevented CME and CFE from launching their new products before public hearings could have been called.

    Nevertheless, staff is attentive to concerns raised by a few clearing members of at least one of the associated DCOs of the self-certifying DCMs of a lack of consultation and input before the DCOs began clearing these bitcoin futures contracts.

    I do believe it is right that interested parties, especially clearing members, have an opportunity to raise appropriate concerns for consideration by regulated platforms proposing virtual currency derivatives and DCOs considering clearing new virtual currency products. This is especially so because of the nascent state of the underlying virtual currency markets and the unique challenges posed by this emerging asset class.

    Therefore, I have recently asked CFTC staff to add an additional, eighth element to its review checklist. For all reviews of new virtual currency derivatives, DCMs and SEFs will be asked to disclose to the CFTC what steps they have taken in their capacity as self-regulatory organizations to gather and accommodate appropriate input from concerned parties, including trading firms and FCMs. Further, I have asked staff to take a close look at DCO governance around the clearing of new products and to consider recommendations for possible further action.

    Next Steps

    Although there is ready legal support in statute and CFTC regulation for many of the elements of the virtual currency review checklist, the staff will continue to work with exchanges on a voluntary basis at present. Nevertheless, it is worth discussing specific rule changes to accommodate the virtual currency review checklist in its own right.

    I have asked the CFTC’s General Counsel to be prepared to discuss with members of the Commission the statutory support for codifying the various elements of the review checklist.  I have also asked him to propose for Commission consideration possible regulatory and/or statutory steps to better support the staff’s approach to virtual currency product review.

    Some press reports concerning Bitcoin futures would suggest that the issue is about the overall process of product self-certification. While I am neither an apologist nor opponent, but rather an inheritor, of the current process of self-certification, I do feel that these reports miss the point. As explained, I believe the real issues are: (a) whether a DCM’s responsibility under the CEA and Commission regulations to ensure that virtual currency derivatives are not readily susceptible to manipulation is sufficiently robust given the nascent state of this emerging asset class and (b) whether a DCO has fulfilled its responsibility under the CEA and Commission regulations to ensure that virtual currency derivatives are sufficiently margined.

    Nevertheless, I do want to make a brief comment on the CFTC’s product self-certification process. As some of the longer-serving members of this section know, Congress and prior Commissions deliberately designed the product self-certification framework to give DCMs, in their role as self-regulatory organizations, the ability to design and certify new products. Congress framed the self-certification process deliberately so that development of new and innovative derivatives products would not be hampered by cautious regulators conscious of the political risks of approving new products. The CFTC’s current product self-certification framework is consistent with public policy that encourages market-driven innovation that has made America’s listed futures markets the envy of the world. Whatever the market impact of Bitcoin futures, I hope it is not to compromise the product self-certification process that has served so well for so long.

    The Choice

    I believe that the CFTC’s response to the spectacular rise of virtual currencies has been a balanced one. Doing nothing would have been irresponsible. Had it even been possible under law or regulation, blocking these new futures products would not have stopped the rise of Bitcoin or other virtual currencies. Instead, it would have ensured that the virtual currency cash markets continue to operate without federal regulatory surveillance for fraud and manipulation.

    Application of CFTC Margin Comparability Determination to “Nonfinancial Counterparty Minus” Entities

    Let me now turn to a matter of cross-border rule compatibility between the US and the EU.

    More than eight years ago, the G-20 Leaders met in Pittsburgh.  At that important meeting, G-20 Leaders committed “to take action at the national and international level to raise standards together so that our national authorities implement global standards consistently in a way that ensures a level playing field and avoids fragmentation of markets, protectionism, and regulatory arbitrage.”32

    I support that commitment today.  As I wrote in an op-ed in a French newspaper last September, “[i]t is notable that the G-20 leaders pledged their efforts to the consistent implementation of global standards rather than identical implementation.  It follows that the best route to ‘consistent implementation’ is the through mutual deference to comparable foreign regulatory frameworks.”33

    The CFTC has worked closely with its fellow European regulators on a series of issues, including central counterparties, trading venues, and uncleared margin.  I commend again European Commission Vice President Dombrovskis and his staff for all of their work and efforts to foster a closer relationship between the CFTC and European Commission.  As there remains much work to be done, I look forward to making our relationship stronger and more productive.

    I still believe today that, despite the imperfect fit between two jurisdictions’ rules, the downside to any minor complications that arise from mutual deference are easily outweighed by the benefits associated with avoiding fragmentation in the markets, protectionism, and regulatory arbitrage.

    I remain committed to the importance of clarity and certainty in these complicated matters.  This is why I want to briefly address one part of our recent determination that the EU margin rules are comparable to the CFTC rules.34

    The European Commission did not require swap dealers to exchange variation margin with nonfinancial counterparties with derivatives exposure below the EU’s threshold for mandatory clearing. However, under Commission rules, some of these “nonfinancial counterparty minus,” or “NFC Minus,” entities may be considered “financial end users” and, thus, subject to variation margin requirements when transacting with a swap dealer.

    The Commission undertook a thorough comparability analysis with the EU rules, looking at a number of issues, including the scope of entities subject to margin requirements.35  The CFTC recognized the possibility of a counterparty being both an “NFC Minus” under EU rules and a financial end user under our rules.

    The Commission found “differences in scope” but, ultimately, “determined that the EU margin rules are comparable in outcome to the Final Margin Rule” and that if a covered swap entity, “in accordance with th[e] comparability determination, complies with the EU margin rules, would be deemed to be in compliance with the Final Margin Rule.”36

    In my opinion, this broad comparability determination means that we will defer to our European counterparts when market participants elect to follow the EU’s margin rules, even when transactions involve “NFC Minus” entities that are financial end-users under CFTC rules.  As I said last October when we adopted this determination, I am confident that these measures have, and will continue to provide, certainty to market participants and also ensure that our global markets are not stifled by fragmentation, inefficiencies, and higher costs.37

    I raise the “NFC Minus” issue in our margin determination because it is illustrative of the challenges associated with comparing two comparable, but not identical, sets of rules that both strive to accomplish similar policy objectives.

    When I voted with my fellow Commissioners to unanimously approve this determination, I understood that comprehensive substituted compliance meant that we would grant deference to the European Union, and the EU would reciprocate as it relates to our rules in the United States.

    Mutual commitment to cross border regulatory deference means that market participants can rely on one set of rules – in their totality – without fear that another jurisdiction will seek to selectively impose an additional layer of regulatory burden.  This approach, whether for margin, trading venues, clearinghouses, or other areas, I believe, is “essential to ensuring a strong and stable trans-Atlantic derivatives market that supports economic growth both in the European Union and the United States.”38

    Whether we are referring to the margin exchanged with “NFC Minus” counterparties or another issue, I am confident that we and our European counterparts have arrived at the right conclusion.  The CFTC will continue to monitor the implementation of our rules, assess how market participants rely on substituted compliance, and ensure the protection of our markets and market participants. In doing so, I am committed to constant communication and close collaboration with my European counterparts.

    Conclusion

    History has placed us in this moment in time. New uses of technology, such as virtual currencies, expand our horizons and introduce new ways of thinking, new temptations, new risks, and new opportunities.

    But, as with all new ideas, there may be – indeed, there will be - surprises and challenges. Predictions of certain boom or definite bust are common and of little value. It is more complicated than that.

    I started this speech by asking for your input and comment. I will end on the same note. Thanks to Commissioners Quintenz and Benham and their advisory committees, we have the chance for input and feedback.

    We turn to you. Circumstances have placed your subject area in the crossing currents of technology, economics, law, and regulation. This is a time to increase your visibility, your engagement, and your action. This is your time to step forward.

    This is a moment for the section’s best work, to rise to a significant challenge, perhaps some of the most significant challenges of a lifetime. We need to attract the best and the brightest to the field, through example, guidance, placement and reward.

    We need more conversations, more writing, and a more robust flow of ideas. We need visionary thinking, best practices, and creative intellectual products.

    And we need this intellectual power not just to meet the challenge of virtual currency and complex cross border rule compatibility. We need it to meet the broader challenge of furthering sound and efficient regulation of global financial markets essential for economic growth and prosperity at a time of transformational digital technologies and complex international regulatory geo-politics.

    As this moment in history reveals itself, we need to be ready and even pro-active, anticipating events and ready for the unexpected. We are being propelled into a future that is unknown, a future that requires more expertise, more thoughtfulness, more creativity and more commitment.

    In short, a future that needs more of you.

    Thank you.

    1 Paul Vigna. For Bitcoin: A Year Like No Other. Wall Street Journal ( Jan. 2, 2018), https://www.wsj.com/articles/for-bitcoin-a-year-like-no-other-1514721601.

    2 Milton Friedman spoke about the prospects of a disintermediated Internet payment system as far back as 1999. See National Taxpayers Union, “Milton Friedman Full Interview on Anti-Trust and Tech (1999),” video, Aug. 9, 2012, https://www.youtube.com/watch?v=mlwxdyLnMXM&feature=youtu.be.

    3 See generally, CFTC Talks, Episode 24, Dec. 29, 2017, Interview with Coincenter.org Director of Research, Peter Van Valkenburgh, at http://www.cftc.gov/Media/Podcast/index.htm.

    4 See Marc Andreessen, Why Bitcoin Matters, New York Times DealBook (Jan. 21, 2014), https://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/; Jerry Brito and Andrea O’Sullivan, Bitcoin: A Primer for Policymakers, George Mason University Mercatus Center (May 3, 2016), https://www.mercatus.org/publication/bitcoin-primer-policymakers; Christian Catalini and Joshua S. Gans, Some Simple Economics of the Blockchain, Rotman School of Management Working Paper No. 2874598, MIT Sloan Research Paper No. 5191-16 (last updated Sept. 21, 2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2874598; Arjun Kharpal, People are 'underestimating' the 'great potential' of bitcoin, billionaire Peter Thiel says, CNBC (Oct. 26, 2017), https://www.cnbc.com/2017/10/26/bitcoin-underestimated-peter-thiel-says.html; Hugh Son, Bitcoin ‘More Than Just a Fad,’ Morgan Stanley CEO Says, Bloomberg (Sept. 27, 2017), https://www.bloomberg.com/news/articles/2017-09-27/bitcoin-more-than-just-a-fad-morgan-stanley-ceo-gorman-says; Chris Brummer and Daniel Gorfine, FinTech: Building a 21st-Century Regulator’s Toolkit, Milken Institute (Oct. 21, 2014), available at http://www.milkeninstitute.org/publications/view/665.

    5 See generally, Bronwyn Howell, Is Bitcoin the Tulip Craze of the 21st Century, or Something Else? American Enterprise Institute: AEIdeas (Jan 5, 2018), http://www.aei.org/publication/is-bitcoin-the-tulip-craze-of-the-21st-century-or-something-else/.

    6 Virtual currencies are not unique in their utility in illicit activity. National currencies, like the US Dollar, and commodities, like gold and diamonds, have long been used to support criminal enterprises.

    7 Countries that have banned Bitcoin include Bangladesh, Bolivia, Ecuador, Kyrgyzstan, Morocco, Nepal, and Vietnam. China has banned Bitcoin for banking institutions.

    8 See https://coinmarketcap.com/ for latest numbers.

    9 See, e.g., http://openmarkets.cmegroup.com/12749/bitcoin-gold-growth-comparison.

    10 Sheila Bair, Former FDIC Chair: Why We Shouldn’t Ban Bitcoin, Yahoo Finance (Dec. 26, 2017), https://finance.yahoo.com/news/former-fdic-chair-sheila-bair-shouldnt-ban-bitcoin-141019569.html.

    11 Id.

    12 Testimony of CFTC Chairman Timothy Massad before the U.S. Senate Committee on Agriculture, Nutrition and Forestry (Dec. 10, 2014), http://www.cftc.gov/PressRoom/SpeechesTestimony/opamassad-6.

    13 In re Coinflip, Inc., Dkt. No. 15-29 (CFTC Sept. 17, 2015), http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfcoinfliprorder09172015.pdf.

    14 In re TeraExchange LLC, Dkt. No. 15-33 (CFTC Sept. 24, 2015), http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfteraexchangeorder92415.pdf.

    15 In re BXFNA Inc. d/b/a Bitfinex, Dkt. No. 16-19 (CFTC June 2, 2016), http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfbfxnaorder060216.pdf.

    16 Retail Commodity Transactions Involving Virtual Currency, 82 Fed. Reg. 60335 (Dec. 20, 2017), www.gpo.gov/fdsys/pkg/FR-2017-12-20/pdf/2017-27421.pdf.

    17 CFTC, A CFTC Primer on Virtual Currencies (Oct. 17, 2017), http://www.cftc.gov/idc/groups/public/documents/file/labcftc_primercurrencies100417.pdf.

    18 On September 21, 2017, the CFTC filed a complaint in federal court in the Southern District of New York against Nicholas Gelfman and Gelfman Blueprint, Inc., see http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfgelfmancomplaint09212017.pdf.

    19 See supra note 17.

    20 CFTC Customer Advisory: Understand the Risks of Virtual Currency Trading (Dec. 15, 2017), http://www.cftc.gov/idc/groups/public/@customerprotection/documents/file/customeradvisory_urvct121517.pdf.

    21 CFTC, Statement on Self-Certification of Bitcoin Products by CME, CFE and Cantor Exchange (Dec. 1, 2017), http://www.cftc.gov/PressRoom/PressReleases/pr7654-17.

    22 CFTC, Bitcoin, http://www.cftc.gov/Bitcoin/index.htm.

    23 See supra note 16.

    24 CFTC, Commitments of Traders, http://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm.

    25 Each CME contract represents 5 bitcoin.

    26 The price changes day to day. As of January 17, the Wall Street Journal is reporting that the price has fallen below $11,000 for the first time since early December. See Mike Bird and Gregor Stuart Hunter, Bitcoin sinks as more regulation looms, Wall Street Journal,( Jan. 17, 2018, B130, https://www.wsj.com/articles/just-another-day-for-bitcoina-20-plunge-1516103459.

    27 See CEA Section 5(d)(3), 7 U.S.C. 7(d)(3); Section 5(d)4), 7 U.S.C. 7(d)(4); 17 C.F.R. 38.253 and 38.254(a), and Appendices B and C to Part 38 of the CFTC’s regulations.

    28 CEA Section 5b(c)(2)(D)(iv), 7 U.S.C. 7a-1(c)(2)(D)(iv) (“The margin from each member and participant of a derivatives clearing organization shall be sufficient to cover potential exposures in normal market conditions.”).

    29 In the case of CME and CFE Bitcoin futures, the initial margins were ultimately set at 47% and 44% by the respective DCOs. By way of comparison that is more than ten times the margin required for CME corn futures products.

    30 One clearing member called for the CFTC to force DCOs to establish a separate clearing system for virtual currencies. However, the CFTC’s “hands were tied” by statute and regulation from requiring a separate clearing system or guaranty fund as a condition to Bitcoin futures product self-certification. The CEA does not require a self-certification process for clearing new futures products. Where separate guaranty funds have been established at DCOs in the past, they have come about through independent negotiations between clearing members and DCOs, not by CFTC action.

    31 FIA, Open Letter to CFTC chairman Giancarlo Regarding the Listing of Cryptocurrency Derivatives (Dec. 7, 2017), https://fia.org/articles/open-letter-cftc-chairman-giancarlo-regarding-listing-cryptocurrency-derivatives.

    32 Leaders’ Statement from the Group of 20 (“G20”) Pittsburgh Summit, Treasury.gov, Sept. 24-25, 2009, https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.

    33 J. Christopher Giancarlo, Op-Ed in Les Échos : Deference Is the Path Forward in Cross-Border Supervision of CCPs, CFTC.gov, http://www.cftc.gov/PressRoom/SpeechesTestimony/giancarlooped091117.

    34 Comparability Determination for the European Union: Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 82 Fed. Reg. 48394 (Oct. 18, 2017), http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2017-22616a.pdf.

    35 Id. at 48398-99.

    36 Id. at 48413.

    37 Release PR 7629-17, CFTC Comparability Determination on EU Margin Requirements and a Common Approach on Trading Venues, CFTC.gov, Oct. 13, 2017, http://www.cftc.gov/PressRoom/PressReleases/pr7629-17.

    38 Release PR 7656-17, CFTC Approves Exemption from SEF Registration Requirement for Multilateral Trading Facilities and Organised Trading Facilities Authorized Within the EU, CFTC.gov, Dec. 8, 2017, http://www.cftc.gov/PressRoom/PressReleases/pr7656-17.

    Last Updated: January 24, 2018